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How the Dividend Yield and Dividend Payout Ratio Differ

By

澳洲幸运5官方开奖结果体彩网:Sean Ross

Updated February 10, 2025

Reviewed by

Chip Stapleton

Fact checked by

Yarilet Perez

The dividend yield tells investors what the simple rate of return is in the form of cash dividends to shareholders. The dividend payout ratio represents how much of a company's net earnings are paid out as div🅘idends and is an indicator of a company's ability to distribute dividends consistently in the future.

Key Takeaways

Analyzing the dividends that companies pay to shareholders helps investors evaluate a firm's health and share value.
The dividend yield compares the amount of the dividend paid to the share price of the company's stock.
The dividend payout ratio compares the dividend amount to earnings per share.

Dividend Yield

The dividend yield shows how much a company has paid out in dividends over a year. The yield is presented as a percentage, not as an actual dollar amount. This makes it 澳洲幸运5官方开奖结果体彩网:easier to see how much return per dollar invested the sharehold🐻er re🌼ceives through dividends.

For example, a company that pays out $10 in annual dividends per share on a stock trading at $100 per share has a dividend yield of 10%. An 澳洲幸运5官方开奖结果体彩网:increase in share price reduces the dividend yield per🔯centage and vice versa for a price dܫecline.

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Dividend Payout Ratio

This financial ratio highlights the relationship between 澳洲幸运5官方开奖结果体彩网:net income and dividend payments to shareholders. The dividend payout ratio is highly connected to a company's 澳洲幸运5官方开奖结果体彩网:cash flow. Investors can see income and dividend entries on the issuing company's 澳洲幸运5官方开奖结果体彩网:balance sheet.

The 澳洲幸运5官方开奖结果体彩网:dividend payout ratio shows whether the dividend payments made by a company make sense given their earnings. If the number is too high, it may be a sign that too small a percentage of the company's profits are reinvested for future operations. This casts doubt on the company's ability to maintain high 澳洲幸运5官方开奖结果体彩网:dividend payments.

Important

The dividend payout compares how much a company returns to shareholders versus how much it keeps to reinvest, pay off♏ debt, or add to cash reserves.

When Are Dividend Yields Misleading?

Evaluating dividend yields alone can be misleading to investors. Some companies pay out dividends even when they are operating at a short-term loss. Others may pay out dividends too aggressively, failing to reinvest enough capital 🔥into their business to maintain profitability down the road. This is where the dividend payout ratio can come in handy.

How Should Investors Compare Dividend Payout Ratios?

When possible, investors should compare dividend payout ratios over some time. It is a sign of good management and financial health if the dividend payout ratios aꦉre historically stable or trending upward.

What Is a High Dividend Payout Ratio?

In extreme cases, dividend payout ratios may exceed 100%, meaning more dividends were𝓡 paid out than there were profits that year. Significantly high ratios are unsustainable. Companies that have stable payout ratios and relatively high dividend yields are usuall🎃y the most attractive options for investors.

The Bottom Line

The dividend yield percentage shows how much a company has paid out in dividends annually. The dividend payout ratio shows whether the dividend payments make sense given the company's earnings. Some companies may pay out all earnings to shareholders, some may only pay out a portion, while others don't pay any dividends to shareholders at all.

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